Stop loss as a safety net
The stop loss is the necessary action not to widen the present losses in case of adverse movement. We call it as loss cutting. Less experienced players are apt to hate cutting loss compared with well trained players. The professional traders often make use of loss cutting as one of important technique for making money. In other words, you would never be qualified as one of experts if you hesitate to take the relevant actions to cut loss. It is quite important where to make position to avoid unexpected losses. The purchase and sales without clear target makes you extend the losses. You had better decide the point for loss cutting before making fresh position. Beginners should take care of the account balance so as not to lose all margin deposit. The loss cut is necessary to our life like as we had better be apart from the terrible sweetheart.
Stop loss order
The stop loss order is defined as a kind of orders regarding to condition. Different from a limit order, you can buy a higher price or sell the lower price than the current market level in case of adverse movement against your intention. We often hear " I will take the relevant action when it needs. I don't want to assume I should make losses though I think to make money". In fact, approaching to your stop level dampens you to cut your hand by yourself. Keep in your mind that you should place the stop loss order before making fresh position because no one knows what happens in the near future.
Where to place the stop loss order
The point to place stop loss order depends on the respective condition, but we think it better to cut position if the market moves adversely to your position. It is sure that we need to be patient in our long life, but there is no good to keep the bad position against the market. You should make it a rule to cut losses if it amounts to five percent of your fund, as shown in below, Money controls.
A certain slippage occurs when the stop loss order is executed. The slippage means the gap between the specified trigger price and the executed price. For example, your stop loss order to sell would be filled at 120.47 despite placing this order with specified rate at 120.50. This is never caused by some minor ignorance or careless mistakes. The stop loss order should be executed under the condition that the market goes through the trigger rate completely, and then, the market rate should move some more adversely to your position when the trigger rate is made sure to break. Some forex brokers offer no slippage trading system, but it has both merits and demerits. You had better ask to forex brokers about the stop loss execution to avoid trouble.
Listen to the market
Taking position makes you all blind. It happens quite often that the market doesn't go up in the contrary to your expectation and not go down as well. You should not stick to your own view in the forex market. It is good to cover as soon as you feel uncomfortable and cut your position with obedience. Loss cut could avoid losing all your money due to miss-constructing of market scenario.